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FINANCIAL TIMES
How to fix university economics courses
A syllabus that does not integrate the insights of other disciplines
fails students
Samuel Bowles
Economists are under attack for a lack of “pluralism” in their
undergraduate curriculums. Insufficient attention, critics say, is given
to contrasting schools of thought — Keynes versus the monetarists, Marx
versus the Neoclassicals — and to the lessons of history and the other
social sciences.
The critics are right. Undergraduate economics instruction tends to be
narrow in both respects, and our students are the worse for it. Problems
arise, however, when it comes to remedies: the critics have a limited
conception of pluralism, and a tendency to overlook recent developments
in the discipline.
We should distinguish between two variants of pluralism. In one,
pluralism by juxtaposition, differing approaches are contrasted, with
students encouraged to see the study of economics as a kind of paradigm
tournament. But pluralism can also be advanced by marshalling the
insights of differing schools of thought and academic disciplines into a
common paradigm. Call this pluralism by integration.
The lack of pluralism of either kind can be traced to the benchmark
model used in most economics teaching. If the paradigm case is a selfish
“homo economicus” buying and selling in perfectly competitive markets in
which supply always equals demand, then it is hard to see what the
insights of other academic disciplines or schools of thought could
contribute. But this benchmark has long been superseded in the economics
used in research and policy advice.
Over the past five years, learners, teachers and researchers have
collaborated on the Core project, developing an introduction to
economics using a more current benchmark that incorporates pluralism by
integration.
To see why a new benchmark matters, consider how Core treats the company
and the labour market. It starts with the fact that employer and
employee have conflicting interests about effort expended at work. The
idea that the labour contract cannot ensure that an employee works hard
or well is a staple of the modern microeconomics of incomplete
contracts. But it comes straight from Karl Marx. The reason the contract
is incomplete, students discover, is that information is both local and
scarce. This insight is the cornerstone of the economics of Friedrich
Hayek.
Core students then learn from Chicago economist Ronald Coase that “the
distinguishing mark of the firm is the suppression of the price
mechanism”. Wages and the amount of work done are determined by the
power exercised by the employer and by employees’ work ethic — not
simply by market competition.
Sociology, psychology, political science and law are integral to
understanding how this model works. Students learn that Herbert Simon,
whose degree was in political science, provided a mathematical model of
this process more than half a century ago.
One result of this approach, also commonplace in modern economics, is
that in the labour market demand will generally fall short of supply,
and the resulting unemployment is due to the incomplete nature of the
labour contract. Integrating Coase, Hayek, Marx and Simon, as well as
recent research, provides a model that students can then use to analyse
the gig economy, the effects of minimum wages or the economic
performance of nations with different labour market institutions.
Now imagine instead that the labour market and the company were
represented as they are in the standard textbook benchmark model. There,
the company is supposed to purchase work from the employee in a
transaction no different from its purchase of kilowatts of electricity.
There is no unemployment and there are no conflicts of interest over
work, no point in the exercise of power over the worker by the employer,
and social norms play no role.
In this imaginary world, Coase, Hayek, Marx and Simon, and other
disciplines, are irrelevant. Core’s pluralism, by contrast, shows
students that useful insights can come from many sources and provides
tools allowing them to address pressing economic problems of today.
The writer is research professor at the Santa Fe Institute. Wendy
Carlin of University College London also contributed |